Gaining Insight beyond the Quarterly Headlines

I read the transcripts from the quarterly conference calls of public companies not only for the big picture, but also for the non-headline nuggets — the operational initiatives that preview potential industry trends.

In North America, we’re down to two public car rental companies, Avis Budget Group (ABG) and Hertz Global Holdings, though only the former is reporting. (Enterprise Holdings is, of course, privately held.)

Here are some quick hits from ABG’s 2014 fourth quarter and full-year conference call, along with analysis of Hertz’s recent update to the public. These tidbits won’t help your game at a cocktail party (unless you’re at the International Car Rental Show), but you might use them to help steer your own business.

The world is going mobile: ABG saw traffic on its mobile apps increase 80% at Avis and almost 150% at Budget last year. Mobile apps now represent almost 5% of all ABG reservations.

ABG is serious about growing Payless: Since acquiring the deep-discount brand in July 2013, ABG has expanded Payless to 50 new markets and 60 new locations in North America, with plans to expand to another 25 North American markets this year.

SiriusXM is the new Garmin: ABG mentioned its SiriusXM satellite radio offering as a factor in helping grow ancillary revenues 5% for the fourth quarter.

The movement is underway for self-service rentals: One of my pet projects when it comes to the future of car rental, ABG said it is investing in connected car technology.

Zipcar is franchising: Hunh? Seemingly buried in the conversation on Zipcar’s progress, ABG said that Zipcar launched its first licensee operation in Istanbul. Outside of this statement, information on a Zipcar franchise initiative is non-existent — though Auto Rental News has confirmed that the Zipcar licensee operation is part of Avis Turkey, a well-established Avis car rental licensee.

We know how much Avis paid for those licensees: The corporate buyback of franchise operations continued apace; along with Las Vegas, Portugal and Edmonton the biggest news was the purchase of Budget Southern California, the founding fathers of Budget Car Rental. ABG said those operations were purchased at an aggregate cost of $282 million. You can bet SoCal cost two-thirds of that pie.

Pricing should be stable: While ABG said it had fluctuating success with price hikes, working out some of last year’s problems — such as the high number of recalls and Hertz’s own over-fleeting issues — should benefit pricing moving forward. A predicted increase in volume, driven in part by an increase in airline enplanements, will also help.

The used car market is faring better than expected: ABG reported that residual values were stronger than expected over the last few months. ABG expressed confidence that the market would absorb the larger volume of off-fleet Hertz vehicles with minimal impact. Attractive financing rates should help new and used values moving forward. The specter of greater off-lease supply still looms, but ABG thinks it won’t have too damaging of an effect. Nonetheless, ABG is baking in a used car value decline that will affect its per-unit fleet costs to increase 2% to 5%.

Expect less Europeans in Florida this year: The Recession is still lingering in Europe — and the rest of the world, for that matter — like a bad cold. The bad news for North America is that the European vacationers are staying home, while we’re going over there.

Europe is still ripe for acquisitions: ABG said that about 35% of the European market is still independent. ABG just bought Maggiore Group, the largest independent car rental operation in Italy, and opened a new franchise operation in France. The company is expecting double-digit growth from Budget in Europe.

Program cars are (still) making a comeback: ABG said it is reducing its risk fleet from 65% in 2014 to 50% this year. Hertz is reducing its risk fleet from 79% to about 70% in the U.S. for 2015. Along with Hertz’s massive fleet turnover, this should temper mileage on rental vehicles, which had been creeping up to Recession levels.

Hertz getting on the right track is good for everyone: Hertz’s over-fleeting situation is remedying itself, and a right-sized fleet should allow it to more easily match ABG’s price raising initiatives. Nonetheless, the company warned not to expect updated financial statements before mid-2015 — at the earliest.

Auto Focus Blog: A blog covering fleets, auto rental and the business of cars

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